Claiming tax deductible expenses when employed

Generally speaking, expenses which are reimbursed by the employer to the employee are now exempt from tax provided they meet the conditions below.

However, some employers do not reimburse expenses in full, and the employee is then entitled to claim a deduction from his income for the expense incurred. This is done by claiming through the Personal Tax Account online, or by submitting form P87.

From 2019 there will be improvements in the administration of these claims, intended to speed up and simplify the claims process.

There are 7 conditions, all of which must be met in order to claim an expense as a deduction from your employed income:

1. Obliged toThe employee must be obliged to incur the expense and not just choose to do so.

2. IncurThe expense must be incurred. If an employee is entitled to claim an overnight allowance but choose to sleep in his car, he can claim no expense as he has incurred none.

3. As holder of the employmentThe expense must relate to employment in that tax year.

4. WhollyAn expense is not allowed if there is any personal benefit.

5. ExclusivelyThe expense must relate to one employment only.

6. NecessarilyAn expense must be necessary to the duties of the job, and not just necessary to the job.

7. In the performance of the dutiesThe expense must relate to the duties of the work. This provision disallows commuting fares and child-minding costs. While these may permit an employee to work, the expenses are not incurred in actually doing the job.

In practice, the only expenses that employees may usually claim are fees to professional bodies, personal tools that the employer requires the employee to provide, laundry of uniforms and similar. For some manual trades, there are fixed amounts that may be claimed without producing evidence of expenditure.

Two areas that are generally disallowed are medical expenses and exam fees. However both of these have been eased a little.

A few decisions from case law:

For medical expenses, the leading case for decades has been Prince v Mapp. Ch D [1969]. This concerned a professional guitarist who had a private operation on his finger so that he could resume playing. He maintained that this was wholly for his work as otherwise he would wait for an operation on the NHS. It was held that this was not wholly for his work as there is a personal benefit of medical treatment.

However in the case HMRC v Parsons TC421 [2010], a stunt man was allowed to claim tax relief for medical expenses to treat him for injuries sustained in his work, in particular for a private operation on his knee. He suffered the injury while working, and only needed it treated so that he could continue working; he could have lived with his injury in a different job. This was enough to make his claim allowable.

Exam fees are generally not allowed as these are held to put in a position where they can work. For example in HMRC v Decadt [2007] a doctor was not allowed to claim for expenses of sitting an exam that was a requirement of his job. However, another doctor was allowed to claim in the Court of Appeal case HMRC v Banerjee [2010] EWCA civ 843. The employment required the specialist registrar to attend certain courses as part of her employment. In this case, the duties of the employment required attendance, which was therefore allowable.